1. Simple, long-term objectives
2. Understanding of the competitive environment
3. Apraisal of resources

Strategy is the overall plan for deploying resources to establish a favorable position

Tactic is a scheme for a specific maneuver

Important

Involve a significant commitment of resources

Not easily reversible

T/F?  Strategy is the link between the firm and its environment.

As design, through planning, and is intentional.

As process, through the response to a multitude of internal and external forces, and is emergent.

1. Prediction, the future is unknown
2. Detachment, impossible to divorce formulation from implementation
3. Formalization, inhibits flexibility, spontaneity, intuition and learning

1. Decision support
2. Coordination and communication
3. Target

Identifies and understands the main issues

Manages complexity

Enhances flexibility and innovation by supporting learning

What is the shareholder approach?

Give 3 justifications for profit maximization (shareholder approach).

1. BOD is legally obligated to shareholders
2. Firm must earn ROC > Cost of Capital
3. To avoid acquistion, firm must achieve market value > book value

Accounting profit

Economic profit

How is the maximum value of the firm measured?

Identify strategic alternatives

Estimate cash flows associated with each

Estimate cost of capital for each

Select strategy with highest NPV

Projects have several decision points

There are options at each decision point, create event trees and evaluate each

Options expire after some duration

Successful companies are those that:

Have a mission and set goals other than profitability and shareholder return

Have strong, consistent, ethical values

1. Place constraints on means and methods
2. Increases effectiveness of competitive advantage
3. Builds internal consensus and commitment

What are the 5 objectives of industry analysis?

1. Structure, which drives competition and profitability
2. Attractiveness
3. Forecast future profitability
4. Formulate strategy
5. Identify key success factors

1. Political
2. Economic
3. Social
4. Technological
5. Demographic
6. Government

Who is the man?

Ben Berkowick

What are the 3 key determinants of industry profitability?

Value of products

Intensity of competition

Bargaining power in the value chain

Perfect competition

Oligopoly

Duopoly

Monopoly

T/F?  Profit can be made in perfect competition.

Threat of new entrants

Threat of substitutes

Bargaining power of buyers

Bargaining power of suppliers

Rivalry among existing firms

Buyers' propensity to substitute

Price-performance characteristics of substitutes

What 7 factors affect potential entrants?

In other words, the principal barriers to entry are...

1. Capital requirements
2. Economies of scale
3. Absolute cost advantage
4. Product differentiation
5. Access to distribution channels
6. Legal and regulatory barriers
7. Retaliation

What 5 factors affect rivalry between established competitors?

In other words, the extent to which industry profitability is depressed by price competition depends on...

1. Concentration
2. Diversity
3. Product differentiation
4. Excess capacity and exit barriers
5. Cost conditions

Price sensitivity

Relative bargaining power

Forecast industry profitability

Create strategies to improve profitability

T/F?  The Porter framework assumes industry structure is fairly stable.

Frames strategic decision as interactions between competitors

Predicts outcomes involving a few evenly-matched players

1. Competition and cooperation
2. Deterrance
3. Commitment
4. Signaling

T/F?  Game theory can show conditions where cooperation is more advantageous than competition.

True

What is known as communication to influence a competitor's decision?

What are some problems with game theory?

Weak in predicting future behavior

Models are highly sensitive to small changes in assumptions

What are 3 ways to identify a strategic group?

1. Identify principal strategic variables which distinguish firms
2. Position each firm in relation to these variables
3. Identify clusters

1. Identify key variables
2. Construct a segmentation matrix
3. Analyze segment attractiveness
4. Identify KSFs in each segment
5. Analyze benefits of broad and narrow scope

Competitive Advantage

↑

           Strategy ← KSFs

↑

Org. capabilities

↑

Resources

1. Tangible
2. Intangible
3. Human

T/F?  Organizational capabilities are often based on corporate functions.

Draw the McKinsey Value Chain

Firm Infrastructure

HR Management

Tech. Development

Procurement

IB Log → Ops → OB Log → M&S → Service

1. Key strengths
2. Key weaknesses
3. Superfluous strengths
4. Zone of irrelevance

Ask how the strengths can be exploited more effectively and fully

1. Path dependence
2. Recombining resouces
3. Imitation
4. Knowledge management

Knowledge management

1. Data mining
2. IT
3. OJT
4. Lessons learned
5. TQM
6. Benchmarking
7. Best practice transfer